Going Global

The Country of Wal-Mart Goes for the Green

In its August 7 issue, Fortune magazine did a lengthy feature article entitled "The Green Machine" analyzing Wal-Mart's corporate initiative to create a more environmentally conscious culture and develop a better model for sustainability -- both in terms of the environment and its business model.   The initiative involves everything from changing its own processes, such as upgrading the fuel efficiency and emissions standards of its truck fleet and the energy efficiency of its huge stores, to changing the product lines that it sells to its 176 million customers a week.   Judging from the degree to which the initiative is featured on its corporate website, the company certainly appears serious about its new direction.   

As with everything Wal-Mart, there is no shortage of  detractors and cynics who see this as a PR stunt designed to distract from Wal-Mart's other highly publicized social shortcomings from low health insurance benefits to a sex discrimination class action.    Interestingly, the company expressly acknowledges this cynicism on its website -- to me a sign that they are serious.  Efforts that are strictly PR usually gloss over or ignore the tough stuff.   And at least one potential environmental cynic believes in what the company has undertaken -- a recent company event featuring the initiative included a showing of "An Inconvenient Truth" with Al Gore providing the narrative in person and then praising the company for its efforts.

So can one company make much of a difference in fighting worldwide environmental challenges?  Let's use a few stats to put Wal-Mart's effort in perspective:

At $315 billion in sales (or gross company product if you will), if Wal-Mart were its own country, it would be the 21st largest economy in the world ranked by GDP, ahead of countries such as Austria, Argentina and Indonesia.

Wal-Mart employs 1.8 million people worldwide, 1.2 million of them in the United States.   That means that 1 in every 120 people in the U.S. labor force are employed by Wal-Mart.  With $240 billion in goods purchased for sale in its stores and another and multi-billion dollar spend on SG&A services such as marketing, legal and accounting, I would estimate that the job of 1 in every 65 working Americans is directly dependent on Wal-Mart, either as an employee of the company or as an employee of a supplier that depends on Wal-Mart for its own revenues.  It's estimated that 1 in 3 Americans is a regular customer at Wal-Mart.

Approximately $63 billion of Wal-Mart's revenues are in foreign markets.  At slightly over 20% of GCP, the company is in the same ballpark as the global average of 25% of GDP derived through exports, and ahead of countries with large well developed domestic markets such as the U.S. itself.   Indeed, Wal-Mart's foreign sales alone would be sufficient tot make the company number 21 on the Fortune 500.   With its total revenue, its number 2 behind only Exxon Mobil.

Needless to say, that's impressive global reach.  With that much influence on employees, suppliers, and customers, if Wal-Mart is serious about its green initiative, this sort of global corporate culture change can have a far more positive impact on improving the world environment than almost any initiative that's gone before -- including an Al Gore movie.

Say No to Corruption and Make It Your Market Advantage

Frequently when I meet with a business person contemplating export entry or the development of operations in a new foreign market they eventually get around to asking about corruption.   They ask how bad it is, usually in a voice that is suddenly more nervous.  My sense is they're nervous in part because it's a subject they haven't had to confront so directly in their domestic business dealings.  But I also sense a bit of nervousness due to what seems to be a percolating realization that if push comes to shove they might feel compelled to go down that road, or at least look the other way while one of their foreign agents does the dirty work for them.  "What else can we do?" they wonder.

The simple answer is to just say "No!"  There are plenty of good reasons for this.  One of course is legal.   Under the U.S. Foreign Corrupt Practices Act, it is a criminal act for an American company to obtain business through bribery.  Do you really want to go from being an American business person to an American criminal to make a few more bucks?  Hopefully that's reason enough, but there is more.

A second reason is that you can become a hostage to your foreign partners / customers / suppliers / competitors.  Most foreign counties also have laws against corruption, and while enforcement may be lax, they are far more apt to be enforced against an alien corporation in response to a complaint by one of their citizens.   I don't know how many times I've heard stories of companies that were led down the primrose path by their local agent only to be turned into the local authorities when the relationship starts to go south.   Needless to say, this is not a good position to get yourself into.

But if the legal constraints are not enough to dissuade you and the threat of being held up just fills you with contempt, let me give you a positive business reason that may be the best of all -- taking a hard stand against corruption in a generally corrupt market can be a winning strategy to differentiate your company to the customers with whom you most want to do business.  Asia Inspection gets it.  In a recent post on their Chief Asia Inspector blog they explained the importance in their business of taking a hard stand for the integrity of the process.  It's another good reason why I think they're on to something as I indicated in an earlier post about their remote quality control services.

Even in corrupt markets, not all business people are corrupt, and even fewer like it that way.  It's incredible how many business people are looking for a way out of the muck -- and that translates into an emotional need that the local competitors aren't meeting.  In my experience, if you take a hard and clear stand against playing the corruption game, while you may lose some short term opportunities as you use them to demonstrate the steadfastness of your commitment, in the long run you will begin to attract the cream of the crop of customers and business partners.   The people who have been aching for someone to give them an opportunity to elevate their business game where it's what they do and not who they pay off that matters. 

Of course there will always be others who sneer and wonder where you get off being Mr. Clean, but they are probably the same people that you went into the market wondering how to avoid getting ensnared with in the first place.   A simple strategy calculated to sort out the good customers from the bad customers through a process of self selection-- and you probably thought that might be difficult in a new foreign market.

Jet Li, Cross-cultural Experience, and the Triumph of International Commerce

I took my teenage son and a couple of his buddies out to celebrate his birthday last night.  They wanted to do Chinese food and a movie.  The movie of choice was "Jet Li's Fearless".   Aside from being a very good movie, it was a fascinating experience from a Going Global point of view as well.

The film is entirely in Chinese with English subtitles.  Set in the late 1800's into the first decade of the 1900's, it tells the story of one man's fight to protect China's cultural identity against the onslaught of westerners arriving to take advantage of the country's recent re-opening to international trade.  This is the kind of movie that even 10 years ago would have played in a couple of small art-house theaters, one showing a night, two on weekends.

This movie was playing in every major cineplex in the Denver area, five shows daily.  At the multiplex that we went to, it was in one of the larger auditoriums -- stadium seating and all.  What's more, the show we went to was packed.  Couples arriving near the end of the previews had to either sit in the front row or not sit together as it was hard to find two empty seats in the whole place.  And it was an incredibly diverse audience, spanning all ages, genders, races and socio-economic groups -- an audience not only large, but broad as well. 

Make no mistake, this movie is not some government sponsored cross-cultural sensitivity thing.  It's an act of raw commerce, pure and simple.   The Chinese movie studio set out to make a film that would appeal to the mass market for entertainment not just in China but in foreign markets as well -- and judging by the crowd's reaction at the show we went to, they have succeeded.   Of course one of the collateral impacts of a movie like this is that it will do more to provide audiences in the U.S. a degree of cross cultural sensitivity than any government program could ever hope to do, if only because it will reach a far larger and more diverse audience.   And you get popcorn as part of the experience.  Talk about a win-win-win deal.

How Does Your Service Sound to Your Customers Abroad?

Ann Michael as usual hit the nail on the head in a post earlier this week on her Manage to Change Blog entitled "Does Motivation Matter?"  And as usual, I am going to put a slight twist in it to make a point about going global.

The question she posed is whether it makes any difference to you as a customer if a bad customer service experience is the result of the person that you're dealing with being criminally negligent, incompetent, or just poorly trained by their company.  As she puts it in the post:

Does it matter that the customer service representative we have on the phone has no clue how to fix our problem and isn't just trying to be difficult?

Her answer (with which I agree) -- "I don't think it does."  She goes on to explain her answer from the point of view of the company providing the customer service in the following terms:

It's our responsibility to get it right, do it right, and treat them right!  We don't get any points with our customers for good intentions -- and we shouldn't expect any.

I imagine we've all had the excruciatingly frustrating experience by this point of speaking to a customer service person with a heavy accent; someone for whom english is their second language; someone who has our account up on their computer screen but doesn't seem to know any more about it than what we are able to glean ourselves by getting our account up on the internet.  How does it make us feel as customers?  Valued?  Itching to do more business with the company?  I think not.

So here's my real question -- you have a company that is exporting product to customers in foreign countries, perhaps customers who don't speak english as a first language if they speak it at all, perhaps customers in a very different time zone -- how does your customer service response sound to them?   Have you or are you willing to do what is necessary to provide a winning customer service experience -- real time answers in a language they can fully understand?   This can be a particular challenge when your new competition are locally based companies with on the ground customer service in the native language.  As Seth Godin would say, what are you going to do to be remarkable?

Globalization and Standardization -- A View from the Trenches

In a previous post, I discussed the evolution of Ted Levitt's seminal formulation of the globalization paradigm which posited that a necessary attribute of a successful global company was its ability to push standardization across borders.   In that post I suggested that the changes brought about by the internet may have changed the rules of the game in a number of respects such that, at least for smaller companies, the game went to the quick and flexible, not necessarily to the companies large enough to enforce their manufacturing standards on consumers.   It seems that the new paradigm applies to large old line manufacturing companies as well.

I had the opportunity to attend a luncheon today (actually the annual membership meeting for the World Trade Center Ass'n Denver) which featured keynote remarks by Richard Bell, President of the Gates Corporation.  For those not familiar with Gates, they make drive belts and hydraulic equipment largely focused on the automotive industry, and describe themselves as the largest non-tire rubber manufacturer in the world.   The company operates 49 plants across the globe and supplies customers around the world with the product.

In describing Gates's approach to international markets, Mr. Bell expounded upon both the need to be flexible, and the advantages of complying with that need.  Among Gates's products is something so seemingly mundane as a "27 inch V-Belt".   Bell explained that Gates actually makes at least 6 distinct variations of this product, each geared to the unique demands of particular regional markets -- and pointed out that none of the 6 are in fact 27 inches.

He attributed the need to be flexible in part to the inability to control global standards.  Far from bemoaning that fact, however, Bell went on to explain that their ability to respond to local requirements and preferences in a global fashion in fact produced a competitive advantage.  As Bell sees it, the multiple platforms gives Gates a more complex business model for potential competitors to replicate, as opposed to presenting a single target for a would-be competitor to hit. 

If a company such as Gates which is the leader in its industry can't hope to control global standards in this on-demand consumer driven marketplace, then I suspect very few companies can. 

[Note of attribution: The "Against International Standards" sign is in fact a work of art by Stefan Bruggemann (white neon on plexiglass) viewable at i-20.com.]

International Engagement and Global Stability -- Bringing Countries Along the "J" Curve

I have discussed previously my own view of the critical relationship between the global integration of markets and the essential elements for political stability in international relations.  These have ranged from a post arguing that globalization may be our one hope to create the conditions for a more peaceful world to another suggesting its time to reexamine the U.S.'s longstanding trade embargo of Cuba.  As such, I am always interested in other analyses along these lines and recently came across an extremely articulate one in the form of a preview of a recently published book entitled "The J Curve - A New Way to Understand Why Nations Rise and Fall" by its author Ian Bremmer as published in the current issues of U.S. News & World Report.

Mr. Bremmer begins his piece by discussing on the odd juxtaposition of the internal policies of the tyrannical regimes in Iran and North Korea with the U.S.'s threatened foreign policy response if those nations don't come more into the international fold on the critical issues impacting global stability.  In Iran, the regime has banned western music from its state run media outlets and is looking for more effective ways to jam the airways to prevent outside sources of information from reaching the people.  At the same time, the U.S. is threatening Iran with "isolation from the international community."  Bremmer wryly asks the question, "Who can isolate Iran faster: the U.S. State Department or the Islamic Revolutionary Guard Corps?"

He makes a similar point with respect to North Korea.  He points out that "the survival of Kim's regime depends on its ability to isolate North Korea and to hide the extent of the country's decay from its people," while at the same time the U.S. has threatened to "further deepen North Korea's isolation."   As Bremmer makes the implicit point, "threatening [Kim] with isolation is like threatening a drowning man with a lifeboat."

Bremmer's thesis is that if a country's possible developmental stages are placed on a graph where the vertical axis measures the country's political and economic stability and the horizontal axis measures the degree of its social and economic openness, the curve would resemble the letter "J".  At one end of the spectrum are states whose very stability depends on an oppressive regime being able to close its people off from international integration so as to avoid the inevitable comparison  between the real state of their existence with that of people in other countries.  On the other end of the spectrum are states that have achieved a high degree of stability because of a broad openness to the free flow of information, goods and capital both internally and among other nations, giving the country the ability to quickly recognize and meet ever changing challenges in the internal and external environments.

Bremmer correctly posits that "the most powerful agents for constructive, sustainable change in any society are the people who live within it."   The effective instigation of change requires policies that shed light upon their disadvantage relative to their international neighbors and empowering them to take action against the repressive regime that is the cause of their isolation from greater opportunity available in the world.  The key to a successful international policy applying the principles implicit in the "J" curve is to know how to assist states mired in repression and recessive development with navigating the "transitional period of dangerous instability" as they move from stability dependent upon repression to stability based on open integration with the international community.   

Based on this preview, I look forward to the publication of Bremmer's book and hope that a few of the isolationists among us take to heart its implications for the unintended consequences of a policy direction which consistently fails to work effectively in a globally integrated world. 

Foreign Currency Valuations -- Ups and Downs in International Business

A recent post entitled "US Business Leaders Think Chinese Currency is Unfairly Valued" on the PanAsianBiz blog raised the issue whether the pegging of the Chinese currency to the U.S. dollar hurts or helps the American economy.  The standard argument here is that the renmimbi (RMB) is undervalued relative to what it would be if the currency were left to float freely on open foreign exchange markets, and that this under-valuation allows Chinese goods to trade at cheaper prices in foreign markets giving the Chinese an uncompetitive advantage in the balance of trade.

My own take on this particular issue as outlined in a comment to the PanAsianBiz post is that the wage differential between China and the U.S. is of such a magnitude at present that the indicated change in the value of the RMB would not be sufficient to suddenly cause Chinese goods to trade at a par with goods from the U.S. or other developed markets.  For a more scholarly analysis of the correct valuation of the RMB, you can read the paper published by the Institute for International Economics entitled "Adjusting China's Exchange Rate Policies." 

When it comes to international trade and operations, however, the question does highlight one of the potentially significant variables that must be dealt with that does not present itself so long as your business remains wholly domestic.  The greatest challenge comes when a financial crisis causes the currency of a particular country to be significantly devalued overnight.  If a U.S. company has outstanding sales commitments denominated in the foreign currency, then losses will be in store when those sales are translated into dollars.  In addition, it would be hard for a country exporting to the devalued market to effect and enforce price increases sufficient to offset the change in currency valuation while still remaining price competitive with locally manufactured goods.  This effect can gut a company's entire market share rapidly if the devaluation is severe enough.

On the upside of all this, if the currency in a country or region is increasing in relative value, foreign operations in those countries become increasingly profitable when the earnings are repatriated.  For example, as the Euro was running up in value against the dollar over the past couple of years, the quarterly financial report of more than one American company with significant operations in Europe hit a bright spot as the profits earned in Euros were translated into increasingly more dollars.

Is there a strategy to play these movements in relative currency valuations to mitigate risk and increase returns?   My experience would suggest that unless you are in the foreign exchange business, probably not.   Certainly some companies use hedge strategies in an attempt to smooth out these vicissitudes, but I imagine that if you control for luck, in most cases they are as apt to lose money as gain money as a result.

If a market is strategically advantageous to locate operations, you should locate them there with the understanding that your profits will face tail winds and head winds over time as they return to headquarters.  You may want to consider projections for valuation fluctuations as one of the variables in setting your annual operating plan, but I don't see it being a major driver in the strategic decision regarding the location of the operations in the first instance.   Of course, as part of the due diligence in examining any new market opportunity, whether for a sales investment or a plant location, one should examine whether economic indicators might foretell a major devaluation in the offing, and if so, then that might impact the timing of making the move.

As with everything else in this business, it comes down to understanding the market in which your interested and knowing the ways in which it is similar and the ways in which it is different from your home market in which you are used to operating successfully.

Off-shoring Legal Services -- An Idea Gone Too Far?

There is some debate over whether the character of Dick the Butcher is being facetious or serious in Shakespeare's Henry VI Pt.2 when he proclaims the famous line, "The first thing we do, Let's kill all the lawyers."   Headline editors have had some fun in recent days parroting the line with "Let's offshore all the lawyers" in examining DuPont's contract to off shore legal services to Office Tiger, an international outsourcing firm based in India and the Philippines.  (See for example the report in BusinessWeek OnLine).  One thing is certain however -- the people responsible for managing the legal function at DuPont were not being facetious in trying to save $6 million in legal fees through the off-shoring arrangement.

As I understand it, at this point the off-shoring involves relatively mundane, albeit critical, tasks surrounding the review and cataloging of millions of pages of documents in mass tort litigation.  Nonetheless, it raises the specter, and thorny issues, of an expanded view of off shoring legal advice.

One issue is the ability to maintain control of confidential information, although once a company gets comfortable with off shore service providers handling such highly sensitive proprietary tasks as new product development and software design, I suppose legal confidences are something around which they can gain a sufficient comfort level.   There are also the ethical issues that may be unique to the practice of law such as at what point does off shoring legal work for a case pending in the U.S. constitute practising law without a license in the relevant jurisdiction.

Then there is the critical issue that needs to be carefully considered in any remote off-shoring arrangement, that being the greater difficulty in obtaining recourse when something goes awry.  If off shoring advice gets more substantive -- say advice on a business transaction with multi-state implications -- where does the client turn for recompense if the advice turns out to have serious adverse tax consequences in a particular state?  What is the standard of care applied to a lawyer in India?   What kind of malpractice insurance do they carry?   Indeed, with some of the draconian sanctions handed out by courts for discovery abuses, perhaps even off-shoring document review could have implications if the process is not adequately managed to comply with relevant standards for the preservation and production of evidence.

Lost in Translation -- Do You Know What You Are Really Telling Your Foreign Customers?

I'm sure most of us have had the experience of setting up the new technological gizmo from Japan only to be completely stymied by the English version of the directions and wondering what the manufacturer was thinking when they approved the translation.  An extreme example of this non-sensical translation that makes the point in dramatic fashion can be found in the "Selling It" feature in the September issue of Consumer Reports.   The column quotes "helpful" information from a package of wrapping paper made in China for the American market:

"This wrapping paper the assortment is numerous, and the species assorts with the popular vogue syncronous, the applicability of low file product in rarious senior high school is expensive, deep sufler the larger businessman to like!"

Thank goodness there is a diagram with an arrow indicating the orderly transformation of the product from the roll of paper to the beautifully wrapped gift.

While it's easy to poke fun at this sort of thing, there is a cautionary tale for any business exporting its product to foreign markets -- unless you are extremely careful about the process used in producing your foreign language literature, there are people in China / India / Mexico (fill in your destination market) poking the same fun at your materials that you had translated from English in an effort to communicate your global savvy to your customers abroad.

As a first step, it is critical to vet the credentials of the translator.  It is not enough that they have a degree in the foreign language,or conversely that the target language is their native language and they have a degree in English.  They should have proven on the ground fluency in both languages.

But even that is not enough.  We become so accustomed to describing our products that we are not even aware of the small idiomatic expressions that are an integral part of those descriptions -- "twist it off", "mop it down", "runs like a charm", "until it snaps into place".    If one is not careful, they will wind up sounding very much like "the applicability of low file product" -- only when you are presented the proofs of the Japanese version of your literature, you won't recognize that and being pleased simply to have made the effort to present your customers with literature in their own language, you will unwittingly open your product up to a late night comedy routine.

So before you approve a print run of 5,000 copies of your new foreign language literature piece, a second critical step is to have it reviewed by someone you trust in the target market who is familiar with your industry and products -- if not an employee, perhaps your distributor contact or sales agent.  If your intent is to let your foreign customers know that your business is committed to the market and serious about customer service, it's important that your product information not sound like gibberish to the ears of your export customer.

Denver International -- Not an Oxymoron for Business Travelers

Being an international business person in a land-locked city nearly 1,000 miles from the nearest international border might appear to be challenging at times.   But of course so much business is conducted over a web portal, your international customer or business partner is typically no further than your computer terminal.   In the end, however, nothing can compare with a face-to-face interaction, and almost no matter where you begin, to get to where you're going you will need to travel through an airport.

I am pleased to be able to do a little home town cheerleading here and point to an article in the current issue of Business 2.0 which profiles the 5 best international airports for travelers in the U.S. and trumpet the fact that Denver International Airport (DIA) is among them.   The article notes that U.S. airports probably don't measure up to the best in foreign airports (an experience that I would attribute to the newness of some of the better airports in Asia and the seemingly inherent sense of design and function in architecture evident in many facilities in Europe), but in my own experience, DIA ranks not only among the best in the U.S., but among the best in the world.   Another reason why no matter how invigorating a trip abroad may be, it's nice to arrive safely home.   

While we're on the subject, share your comments on the best and worst international airports you've experienced.   I'm going to give this some more thought, but as a first reaction I would say best is the new airport in Shanghai and the worst is Heathrow -- at least among airports in major cities.